Exchange traded funds (ETFs) have long been knocking on the doors of 401(k) providers, so what is taking so long?
The total pension plan business is at $4.5 trillion, and ETF providers consider this area to be the final frontier for the funds. It’s only a matter of time before the funds are a routine part of such plans, reports Marianna Lehman for Financial Times
The two most compelling arguments that ETFs would be a great fit into 401(k) plans is their low-cost and fee transparency, which is just perfect for the recent intervention from US Congress on fee disclosure within investments included in 401(k) plans.
401(k) plan providers are already anticipating the crackdown on fees, and a recent study has shown that they’re coming down.
The hurdle that keeps ETFS from the retirement plans is the fact that an ETF trades throughout the day. Seamless recordkeeping of traded securities are simply not supported on a platform for 401(k) plans. This will in no way detract from attempts by providers in dabbling in this area of the industry and it opens up the gates for all providers to strive really hard to get their foot in the 401(k) door first.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.